Mergers & Acquisitions in times of COVID-19

Current situation: Hotels, restaurants and caterers, airlines, event and concert organisers, travel agencies – to name just a few – are currently facing dramatic slumps in sales and orders, sometimes accompanied by a loss of high preproduction costs. Where revenues discontinue overnight, liquidity may quickly turn out to be a serious problem. It remains to be seen whether precautionary measures taken by businesses in the preceding year will be sufficient. Nevertheless, it is to be assumed that many companies are prepared insufficiently for the impending financial losses and that their continued existence can only be secured by drastic measures, namely focusing on core activities by selling peripheral activities or by a complete sale.

That means: If a business in a crisis is sold – in an accelerated or distressed M&A process – the required restrictions in terms of time are a particular challenge for the M&A process and the parties involved. Differing interests, shortage of time, and erosion effects in business operations are obstacles to a successful sale. What should be taken into account by all means: If carried out consistently, a sale may be a more attractive solution than the restructuring of the business in the long term.

Open-mindedness and immediate implementation are the main success factors in an accelerated or distressed M&A process, where time limits should be kept short and where the number of investors to be contacted should rather be too large than too small. The motivation of selling in an accelerated M&A process or the precarious situation of a business in a distressed M&A case should be communicated to the prospective buyer openly and well in advance in order to avoid protracted negotiations. Buyers who only get this information from the data room might withdraw their proposal as this may feel like breach of confidence to them or they might be attempted to take advantage of the situation. Simultaneously, the opportunity which this situation represents for an investor is to be emphasized and to be used towards the preservation of value in meetings with investors.

Act now: The legendary investor Warren Buffet is quoted on the COVID-19 crisis as saying: “Well, it’s going to be terrible,” ... but “It won’t stop the progress of the country or the world.”

Even if the transaction environment probably has become more difficult, the insecurity and the changed framework may also open up new investment opportunities: opportunities for investors with swift and focused action who use accelerated and distressed M&A for targeted acquisitions, and opportunities for the shareholders who can preserve their assets despite the financial imbalance without insecure restructuring of the business in the long term or being at risk of insolvency.

The experts of Warth & Klein Grant Thornton and HANSE Management Consulting will be pleased to assist you with an analysis of your company's situation and with preparing and performing an accelerated or distressed M&A process. With our firm M&A process we can help you to preserve values to identify and to understand crisis as an opportunity and use it.